WILL YOUR DEVELOPER DELIVER?
N25m now or N32m when completed. Which offer will you take? Most likely the N25m. but there is a catch _ the property has not been built yet or is under construction. This means that you can only get the property at a lower price if you pay while it is being constructed. So what will the property look like when it is ready? Your attention will be drawn to the architectural plans.
Welcome to the off-plan sale. It is called off-plan because buyers are to make the decision to buy off the plan i.e. from the plans. You don’t need a soothsayer to tell you what can go wrong with buying a property in this manner. Construction may not be completed, it may complete but not up to the standard specified in the Agreement or the developer may act in such a manner that the government or owner of the land stops the construction. Buyers into the various Lekki gardens projects were affected this way, when building on one of the estates collapsed and the Lagos state government stopped work on all the other estates.
So buying off-plan is basically a leap of faith. The purchaser can however ameliorate the risk if he gets the answer to this question: dies the developer has the capacity and competence to see the project to competence?
We do not recommend that you (the purchaser) ask the developer this question directly: his answer will be ‘yes’! You will have to conduct some investigation and get answers from third parties to confirm any facts or impressions you get from your research.
First question to ask: has the developer done this type of project before? Note that the query is not if the developer has executed any projects before but if he has done a similar project. This refers to the type of project and the location. A developer who is marketing a high-rise office block of 15 floors is a novice if he has successfully constructed a large number of townhouse complexes. The two projects require deference sets of skills and the townhouse developer must show that he has on his team, the skills, experience and capacity to go up several floor beyond the 3fkiirs he has developed expertise in. if the developer has all his previous project in Yaba, you have to be sure that his learning curve is not too steep for a project he wants to do in lekki. A developer, who is executing a similar project to one he has done several times before, will have a better than average idea of the costs, local terrain issues and peculiarities of the market and the purchaser will gain from this. If not, the project will be an experiment and you and your money will be the guinea pig.
The second question: what happens if the developer dies? Or, this is a rather extreme question but before you hand over your millions of naira, you have to understand that if the developer is a one man company, you have what corporate finance specialist calls a key man risk’. His life, health and persona circumstances, if they go awry, could have an effect on the project. So for this reason, it will be wise to deal only with PLCs and their obvious advantage of continuing as a going concern despite the circumstances of their CEO. Problems that PLCs offering of-plan deals are virtually non-existent but there are many one man’ firms offering many juicy deals. The solution for this is to get an advance payment or a performance bond issued by a bank or sturdy financial institution, which means the bank will pay you back in the event of non-performance of the developer. You may not get the house, but at least you get your money back.
The third question: will your money complete the project? If the developer requires financing from other sources including yours to complete the project, then you need to be convinced that he will get the additional financing. The reason for this is obvious: if he doesn’t, both of you will be left looking at an uncompleted project. There is no doubt that off-plan purchase can be a win-win for both developer and purchaser. The securit7u for the latter however, is how well he has minimized his risks and the best way of doing that is a competent and capable developer. The major precaution to take is to conduct a proper investigation on the integrity of the developer and his antecedents. This is the main thing to determine-serious developers are very careful with their reputation. Based on hearsay-visit their developments and speak to people who have bought from them before.